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Metaphor of how we got fiat currency:

You check your coat (gold) into the coat check (bank) and get a paper ticket (note or bill).

The coat (gold) is the real thing of value, and the ticket (note) is just a stand-in for it.

If all the coat check (bank) requires to give you back your coat (gold) is the ticket (note), you can transfer the ticket to someone in order to transfer the coat.

Imagine the coat check (bank) starts issuing more tickets than they have coats.

This is inflation.

This allows them to transfer more coats worth of value than they actually possess, but if the people all came and demanded their coats there wouldn't be enough.

To resolve this in a free market, the coat check (bank) would be seized by authorities and the directors made to provide the coats (gold) they had promised - out of first coat check (bank) property and if that's not enough out of their personal property.

Instead, the authorities were cut in on the deal and allow the coat check to operate without providing any coats (gold) at all.

This is fiat currency.

The fiat mindset shuffles currency around without any underlying money. We have claims for money, which in ancient times were actually redeemable for money, but now we are so psyoped we call these defaulted paper claims "money".

Bitcoin gives us a decentralized coat check with more sensible rules. But where are the coats?

Joe 2y ago

“Bitcoin gives us a decentralized coat check with more sensible rules.”

I see it as:

Your coat (sats) no longer needs coat checkers (banks) because they can stay in your own closet (private keys).

But it appears you agree Fiat mindset, enabled and enforced by rulers, has led to the zombie plane appearing to stay aloft.

Bitcoin mindset is an attempt to see if rules, not rulers, can build a new aircraft entirely.

As for the missing coats (fruits of our labor), time will tell if Bitcoin mindset can do better.

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Discussion

a source familiar with the matter 2y ago

Sats & bitcoins are tickets, not coats.

The difference is that coats have a trade value because they have a use value, while the tickets have trade value only.

Bitcoiners try to reverse this and say Bitcoin makes a perfect money because it has only trade value - but this is backwards. This makes it a currency and makes it completely ineligible to be considered money.

Joe 2y ago

When I asked what important element has been taken away, is your answer *the coats*?

Reviewing your response, you gave a metaphor for how we got fiat currency and ended with a question - but where are the coats?

a source familiar with the matter 2y ago

Yes - the coats - the real asset - the gold - the cold, hard cash

We have tickets but no coats, currency but no money

(How can cash be cold and hard?)

Joe 2y ago

Trying to steel-man your position - Bitcoin is still fiat, and it’s what fiat tickets and Bitcoin tickets can be exchanged for that is the real thing of value.

Am I close to the meat of your claim?

———

If so, I would agree with that.

But Bitcoin is a communication network, the token/ticket (unit of account), the transmission of the token, the ledger, the bank vault, the bank security guards, and more (more and more overtime since it’s software that can be improved with BIPs).

These together, bundled in code that individuals can choose to run on their own devices, are immensely valuable.

a source familiar with the matter 2y ago

Very close, but not dead-on

Who creates the tickets?

Why should any of us care to accept these tickets from the creator in exchange for coats or anything else?

If we want to trade these tickets around, how do we know how much they're worth against various real things?

If I can take the ticket into a department store and trade it for a coat, in the short term and for me it is just as good as if the ticket creator gave me the coat. A coat is a coat (at least in this metaphor) & a troy ounce of 99.9% gold is a troy ounce of 99.9% gold. But what will the department store do with the ticket except make their way back to the coat check and demand a coat? If for some reason these tickets are widely accepted and there begins to be some doubt about whether they will be widely accepted in the future, perhaps because people increasingly understand the coat check has no coats, people will dump the tickets while they're still good for anything they can get their hands on.

This panic, which Mises called the flight to real values, I believe will happen to both fiat currency and Bitcoin because there is no real stable asset. For now both of these accounting units exchange for various real goods.